Tips & Special Topics
American Recovery and Reinvestment Act of 2009 Protects Veteran Homeowners
Added April 8, 2009 | Updated July 15, 2009
On February 17, 2009 President Barack Obama signed the American Recovery and Reinvestment Act – known as the Stimulus Bill. The bill is largely intended to provide stimulus to the U.S. economy in the wake of the downturn suffered as a result (in part) of the subprime mortgage crisis. A focal point of the bill is $555 million for a temporary expansion of the Homeowner’s Assistance Program benefits for private home sale losses of both military and civilian Defense Department personnel. The program may provide benefits for those with military affiliation who lose money on a home purchased before July 1, 2006 and must sell due to a service forced relocation or certain other service-related circumstances.
Issues faced by veterans in the current economy caught the attention of Congress, and language was included in the 2009 Economic Stimulus Package to describe compensation for service members, with or without VA Loans, who sell their homes and suffer a loss due to declines in fair market value, if the sale was made necessary by (generally):
• Relocation after a military base closure
• Reassignment ordered between July 1, 2006 and September 30, 2012
• Combat wound requiring relocation for further medical assistance
The Stimulus Bill also provides protection for surviving spouses of those killed in the line of duty. The Stimulus money is appropriated for the Secretary of Defense to use in any of a number of alternative ways, such as by acquiring title to a military person’s property or reimbursing the military person for losses after a private sale.
Like every American, it’s possible for those with military affiliation to be faced with life-changing situations that may threaten homeownership. Base closures, reassignments and falling real estate prices are hitting some military families hard. And, with each summer being peak season for Permanent Change of Station (PCS), more relocations are just around the corner. Service persons who own homes could be negatively impacted due to relocation in an economic downturn.
During the housing boom from 2002-2006, military relocation may not have presented much of a problem. In general, home sales were fast and profitable. However, when the housing market began to really show its decline in 2006, the story changed for many military families.
Since the decline, there have been challenges presented to homeowners in the military ordered to relocate. A home that was bought in 2006 might have lost substantial value by March 2009. A home on the market today may sit unsold, on average, for 19 months or even longer. If it does sell, the homeowner would suffer a financial loss if the home decreased in value. If the home doesn’t sell, the service person may be stuck with ongoing mortgage payments. The family would likely also have to pay rent or a mortgage in their new location. And, two house payments could put them over their heads financially and even lead to a foreclosure.
The idea of foreclosure is daunting, particularly for career service members, as credit checks are necessary to gain security clearances. And, increased financial stress for families due to the housing market comes at a bad time -- when many active service members have been deployed to Afghanistan or Iraq.
Under the new provision, the federal government is prepared to cover part of a veteran’s loss if the veteran was effectively forced to sell as a result of any of the above. The government could buy the home. The price or payment would be determined by a formula. Generally, the government could cover the difference between 95% of the prior fair market value, and the fair market value at the time of the event that results in a loss.
The amount budgeted for this portion of stimulus is $555 million. It is under the Defense Department's Homeowners Assistance Program which was established specifically to help military and federal personnel who suffer financial loss due to base closures. This is not to be confused with benefits provided under the Department of Veterans Affairs Home Loan Guaranty Program which was established to help veterans purchase homes.
The 2009 stimulus inclusions for military real estate losses would expand the Department of Defense’s Homeowner Assistance Program to potentially 17,000 claimants, according to Sen. Tim Johnson (D-S.D.), who sponsored the measure.
The stimulus inclusions do not cover all military members facing loss due to home sales. Protection only applies to a service member's primary residence, and only to homes purchased before July 1, 2006, around the time the market began its decline, and sold between July 1, 2006 and September 30, 2012.
Covered damages are to be determined by Secretary of Defense according to the formula and the facts and circumstances under which the loss is suffered.
The 2009 stimulus package should provide some welcome relief for military members, and hopefully will protect against costly foreclosures and/or losses.
